PA Dept. of Revenue Issues Critical Sales and Use Tax Bulletin for 2017

 In Company News

The Pennsylvania Department of Revenue (“The Department”) publicized significant procedural changes in their handling of sales and use tax refund petitions with their April 10, 2017 issuance of Sales & Use Tax Bulletin 2017-01.

What’s New?

The Department is requiring substantially more information from taxpayers who have submitted a “large” refund request or appeal to the Board of Appeals. Furthermore, the Department announced that these “large” refund requests may trigger a field audit examination to review all of the taxpayer’s sales and use tax positions during the appeal period–not just the items being appealed.

When a refund or appeal claim is submitted to the Board of Appeals (“Board”), the Board has the discretion to issue a decision and order requiring a field audit. Generally, the Board will consider refund petitions in excess of $100,000 to be a “large” refund claim that should be subject to a field audit examination prior to a final Board decision. Also, the Board will treat taxpayers filing multiple petitions within a year in excess of $100,000 as filing a “large” refund claim.

Other Changes

The Board is implementing other new changes as well related to appeal submissions. The Appeal Schedule, REV-39, has been updated and requires additional information from taxpayers. The significant changes are:

  • Listing of the item description as detailed on the invoice
  • 100% proof of payment of tax. In the past, the Board selected a sample of transactions for proof of payment of tax.
  • Instructions state that “failure to provide any of the information requested…may result in the dismissal of your petition”.

The Board issued a new summary appeal schedule, REV-40 that must be filed with all petitions seeking a refund of $100,000 or more. This schedule will help the Department determine if they want to refer the refund petition for a field audit examination before all the evidence is submitted to the Board for review. This schedule requires a summary of the issues (resale, direct use in manufacturing, non-taxable services, etc.) by year, number of transactions and estimated dollar amount per issue.

The total amount of relief requested on the refund petition must equal the total relief requested on the Summary Appeal Schedule or else the Board is going to request the complete appeal schedule.

What’s It Mean?

The Department explained why the field audit would be advantageous to both the taxpayer and government. In their opinion, the advantages include:

  • Tax overpayments would offset any audit liability since the audit will consider both underpayments and overpayments
  • A field audit can include a stratified random sample of liabilities and overpayments to limit the number of transactions to be reviewed at appellate levels
  • Potential reduction in interest and penalty if a follow-up audit were initiated after a refund was issued
  • Consolidating liability and overpayment issues into a field audit will allow the appellate process to handle both issues simultaneously.

The Bulletin clarifies that a taxpayer can file a subsequent refund petition after the field audit for “any refunds not granted in the audit” since the petitioner’s “due process rights will be fully preserved through the field audit process”.

Our Take

We view the benefits of the new procedures to more advantageous to the Department than to the taxpayer. This is based on moving from sampling proof of payment to requiring 100% proof of payment and the Department’s ability to use their discretion in requiring a field audit. Both of these measures increase taxpayer’s investment of time and money in order to appeal.

We continue to monitor and will report back regarding the implementation of the new reporting requirements and how the Department will manage its discretion to refer an appeal to field audit examination.



By Darren Finn,


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